HELOC Calculator
Estimate your payments for a Home Equity Line of Credit.
HELOC Details
Your Estimated Payments
Interest-Only Payment
(During Draw Period)
$0.00
Principal & Interest Payment
(During Repayment Period)
$0.00
Total Interest Paid
$0.00
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A Comprehensive Guide to Home Equity Lines of Credit (HELOCs)
What is a HELOC?
A Home Equity Line of Credit, or HELOC, is a type of second mortgage that lets you borrow against the equity you’ve built in your home. Think of it like a credit card that’s secured by your property. You are given a credit limit and can draw funds as you need them, up to that limit. This flexibility makes HELOCs a popular choice for financing large, ongoing projects or managing unpredictable expenses. Our HELOC Calculator is designed to demystify the costs associated with this unique type of loan.
The Two Phases of a HELOC: Draw Period vs. Repayment Period
Unlike a traditional loan, a HELOC is structured in two distinct phases, and it’s essential to understand both. Our HELOC Calculator shows you the payment for each period.
- The Draw Period: This is the initial phase of the loan, typically lasting 5 to 10 years. During this time, you can borrow money from your credit line as needed. Your required monthly payments are “interest-only,” meaning you are only paying the interest accrued on the amount you’ve actually borrowed. Your principal balance does not decrease unless you voluntarily make extra payments.
- The Repayment Period: Once the draw period ends, you can no longer borrow money. The loan then converts into a traditional, amortizing loan. Your monthly payment increases significantly because you now have to pay back both the principal balance and the interest over the remaining term of the loan (typically 10 to 20 years). This sudden increase is often called “payment shock.”
HELOC vs. Home Equity Loan: What’s the Difference?
People often confuse HELOCs with home equity loans, but they are very different products. This HELOC Calculator focuses on the line of credit model.
- HELOC (Line of Credit): You get a revolving credit line you can draw from as needed. You only pay interest on the amount you’ve used. Interest rates are typically variable.
- Home Equity Loan (Term Loan): You receive a one-time, lump-sum payment. You start paying back both principal and interest immediately. Interest rates are typically fixed.
Common Uses for a HELOC
The flexibility of a HELOC makes it a good option for a variety of financial goals:
- Home Renovations: Ideal for long-term projects where costs may vary over time.
- Debt Consolidation: Consolidating high-interest credit card debt into a lower-interest HELOC can save a significant amount of money.
- Education Expenses: Can be used to pay for college tuition or other educational costs.
- Emergency Fund: Some homeowners open a HELOC as a standby source of cash for unexpected emergencies, without having to pay any interest until they actually use it.
Risks to Consider Before Getting a HELOC
While powerful, HELOCs come with risks that are important to understand. Before using this HELOC Calculator for your plans, consider the following:
- Variable Interest Rates: Most HELOCs have variable rates, meaning your monthly payment can go up if market rates increase.
- Risk of Foreclosure: Because a HELOC is secured by your home, you could lose your home if you are unable to make the payments.
- Payment Shock: As shown in the calculator, the jump from interest-only payments to fully amortized payments can be substantial and must be planned for.